Long Run Entry and Exit Decisions

3 Key excerpts on "Long Run Entry and Exit Decisions"

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  eBook - ePub

  Competition and Entrepreneurship

  • Israel M. Kirzner(Author)
  • 2015(Publication Date)
  • University of Chicago Press

    (Publisher)

  To sum up, we have discovered that, for profits as for costs, the very same events may qualify for quite different labels, depending on the point of view from which they are appraised. The possibility of events’ being appraised from more than one point of view arises, we have seen, from the circumstance that these events are the outcomes not of a single decision, but of a sequence of indispensible decisions. Because each decision in the sequence was a prerequisite for the final outcome, the economic significance of that outcome can be evaluated in terms of each of these decisions separately. The outcome depended, indeed, on each of these decisions; each is seen to be “responsible” for the outcome and thus provides a legitimate and perhaps highly interesting vantage point from which to appraise what was accomplished.

  I will now show how this same phenomenon—that the very same events can be interpreted in quite different ways, depending on the “length of run” of the interpretation—extends to the competitive-entrepreneurial process generally. I will show that because market phenomena frequently represent the outcomes of long chains of decisions (each one a prerequisite for the later decisions), a market process which is seen as competitive from one point of view may turn out to be monopolistic when evaluated from a different vantage point. This highly important insight is the real purpose of this chapter, and the discussions thus far are to be viewed as introductory.

  ENTREPRENEURIAL DECISIONS, THE LONG RUN AND THE SHORT RUN

  For this discussion I will, then, without apology use the terms long run and short run in the sense suggested by my treatment of costs and profits. A longer-run view will be one taken from the perspective of an earlier decision in a sequence (in which earlier decisions are prerequisites for later ones); a shorter-run view will be one taken from the perspective of a decision later in the sequence. With this terminology, and with the insights of the preceding sections in mind, let us now examine once again the nature of entrepreneurial decision-making.

  It will be recalled that “pure” entrepreneurship involves a decision to buy in one market with the intention of reselling at a higher price in a second market. We have here a sequence of decisions in which the first, that to buy, is a prerequisite for the subsequent decision to sell. Clearly then, every completed entrepreneurial sequence can be appraised from a long-run point of view (i.e., from before the decision to buy) or from a short-run view (from the time just before the decision to sell). Where the entrepreneurial purchase and sale have been in the form of an arbitrage transaction, in which the commitments to buy and to sell are simultaneous, these two points of view will coincide completely. But where the final selling commitment has been made only after the decision to buy, there is scope in general for different

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  Managerial Decision Making

  • J. Bridge, J. C. Dodds(Authors)
  • 2018(Publication Date)
  • Taylor & Francis

    (Publisher)

  * but he must temper his advice with the recognition that the firm is a complex organisation without possession of full information. The models that he constructs will often be inductive, starting with observed phenomena and then devising a model to explain them. Studies of the firm, whether normative or positive, necessarily involve an interdisciplinary approach, but before we can fully appreciate the economist's contribution, it is necessary to look rather more closely at the nature of decision making.

  1-4 Three Types of Decision

  A useful starting point we can employ in the classification of business decisions is the tripartite one suggested by H. I. Ansoff [6 ]. He argues that firms, when they are involved in the transformation of productive resources into the output of goods and services, feature strategic, administrative and operating decisions. These he sees as both interdependent and complementary. To illustrate the nature of decisions within those broad classes we have reproduced his chart as Table 1.1 .

  Strategic decisions, as the name suggests, are concerned with the overall place of the firm within its environment — in other words the product it makes, the markets it operates in and its ability to meet future changes. Decisions about product mix and marketing dictate the firm's long run possibilities and hence the type of decisions it can make in the future. Consequently the firm must have an adequate flow of information to permit strategic decisions to be made. But the strategic decisions which are taken depend upon the objectives of the firm and the large firm may have discretion in the objective(s) it wishes to pursue. Unlike the unequivocal assumption of profit maximisation allegedly pursued by the firm in traditional theory a real firm will not be in a position to adopt such a simple objective. This is because management does not have perfect information and cannot therefore be sure which course of action will yield the maximum. Even if it did have this perfect knowledge, profit might only enter as a constraint on the pursuit of other objectives, in order to ensure long run survival. Furthermore, strategic decisions cannot be taken in isolation from what other firms in the industry might do in response to a major change in strategy. In the cases of perfect competition and monopoly referred to earlier, the individual firm need not take account of its competitors’ reactions because in the case of perfect competition each firm is deemed to be such a small part of the market its individual actions can have no effect on market price and in the case of monopoly there are no competitors. As soon as we depart from these two extremes and consider the kind of enterprise which has market power and also a few rivals (what economists refer to as oligopoly) then the interdependence of decisions — particularly strategic decisions — becomes important. Information is therefore required on the anticipated behaviour of rivals to a given policy change and some conjecture may have to be made as to how they will behave in the face of such a change. We shall discuss this feature of decision making in Chapter 6

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  International Marketing (RLE International Business)

  Strategy and Management

  • Colin Gilligan, Martin Hird(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Part two Market Entry Decisions and Approaches to International Marketing Planning Passage contains an image

  4 Market Entry Strategies

  DOI: 10.4324/9780203077771-7

  For many companies, the most fundamental and far-reaching decisions in international marketing revolve around the question of the market entry strategies that are to be used and the patterns of distribution that are subsequently to be developed. There are a number of factors that account for the significance of these decisions and it is to these that we turn our attention within this chapter.

  Entering Foreign Markets

  The question of how best to enter foreign markets is the first and in many ways the most fundamental to be faced by the marketer, since it is this choice that subsequently influences and shapes the whole of the international marketing programme. If, for example, the company opts for a distributor or licensee, its ability to influence pricing and promotion is likely to be limited. If, by way of contrast, it decides to opt for its own manufacturing subsidiaries, the degree of control that can be exerted will be far higher, although this in turn will be reflected both in the set-up and the direct operating costs.

  In essence, therefore, the market entry decision involves a balancing of costs, control and risk. With this in mind, the marketer needs to consider carefully the various distribution alternatives that are open to him and what he wants to achieve. Once a choice has been made, he is likely to find that he has entered into a long-term commitment that can only be changed with difficulty and at a high cost. Recognising this, the three major options with which he is faced are indirect exporting, direct exporting, and foreign manufacturing. These are shown schematically in Figure 4.1

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